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Tackle the Test: Multiple-Choice Questions

Questions 1–5 refer to the following scenario:

The United States and Mexico are trading partners. Suppose a flu outbreak significantly decreases U.S. tourism in Mexico and causes the Mexican economy to enter a recession. Assume that the money that would have been spent by U.S. tourists in Mexico is, instead, not spent at all.

  1. Question

    Which of the following occurs as a result of the recession in Mexico?



    1. Output in Mexico decreases.



    2. Aggregate demand in the United States decreases.



    3. Output in the United States decreases.



    		A.
    		B.
    		C.
    		D.
    		E.
    Which of the following occurs as a result of the recession in Mexico?

  2. Question

    What is the effect of Mexico’s falling income on the demand for money and the nominal interest rate in Mexico?
    Demand for moneyNominal interest rate

    		A.
    		B.
    		C.
    		D.
    		E.
    What is the effect of Mexico’s falling income on the demand for money and the nominal interest rate in Mexico?

  3. Question

    Given what happens to the nominal interest rate, if the aggregate price level in Mexico decreases, what will happen to the real interest rate?

    		A.
    		B.
    		C.
    		D.
    		E.
    Given what happens to the nominal interest rate, if the aggregate price level in Mexico decreases, what will happen to the real interest rate?

  4. Question

    Suppose the aggregate price level in Mexico decreases relative to that in the United States. What is the effect of this price level change on the demand, and on the exchange rate, for Mexican pesos?
    Demand for pesosExchange rate

    		A.
    		B.
    		C.
    		D.
    		E.
    Suppose the aggregate price level in Mexico decreases relative to that in the United States. What is the effect of this price level change on the demand, and on the exchange rate, for Mexican pesos?

  5. Question

    If the Mexican government pursues expansionary fiscal policy in response to the recession, what will happen to aggregate demand and aggregate supply in Mexico in the short run?
    Aggregate demandShort-run aggregate supply

    		A.
    		B.
    		C.
    		D.
    		E.
    If the Mexican government pursues expansionary fiscal policy in response to the recession, what will happen to aggregate demand and aggregate supply in Mexico in the short run?
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